Business

Tuesday December 30, 2008

TM International sees silver lining amid crisis


TM International Bhd president and group chief executive officer Datuk Seri Jamaludin Ibrahim expects growth to be slightly lower than originally forecast. He, however, remains cautiously optimistic and sees interesting opportunities ahead

WHAT is the outlook of the telecoms sector next year?

We are cautiously optimistic for 2009. With the kind of volatility we are seeing, no one can predict with confidence what 2009 will bring.

However, the telecommunications sector is traditionally a defensive one and not as impacted by downturns. In the second quarter of 2008 for example, while Malaysia’s economy was at 6.3%, the communications subsector grew at 7.9%, primarily driven by the cellular segment (according to the Department of Statistics Malaysia). However, we are seeing unprecedented market volatility affecting consumer confidence and no one remains unaffected.

What has affected, and continues to affect TMI subsidiaries this year has been rising inflation rather then the economic crisis.

This is especially so in countries like Sri Lanka and Cambodia, which has seen inflation rising to a high of 28% and 25% respectively, impacting our operating costs.

High inflation will also have some degree of impact on affordability and consumer spending. Although oil prices have come down sharply and should lead to a deflation, in reality, there is always a lag for prices to adjust and come down.

Datuk Seri Jamaludin Ibrahim

We do expect inflation to ease off in 2009. Given the low penetration of the growth markets we are in, there is ultimately huge potential in terms of new customers in the medium to long term.

In India alone, penetration is only at 25% in a country with a population of 1.2 billion. These factors do to some extent cushion the telecommunication sector from downward market forces, but our outlook remains cautious, as the full impact of the global crisis on our “ecosystem” cannot be easily estimated.

TMI has investments in many countries, are these investments facing slowing growth in the areas they are in?

There are two opposing dynamics at play here – both the positive and negative effects on growth.

On one hand, the low penetration, network rollout in new areas, increasing affordability of handsets and in some countries, declining tariffs, will help the growth trend to continue. On the other hand, current inflation rates and the possible reduction in consumer spending and in some countries, increasing unemployment, would have a negative effect.

Fortunately, inflation is expected to ease off in 2009 and total spending on basic mobile services is less affected by reductions in consumer spending. In most countries, basic voice and SMS are still 80%-90% of the total mobile spending and therefore, not as affected as in countries with very high value-added services.

Ultimately, after taking everything into consideration, we do expect growth to be slightly lower than originally forecast. But within the context of high growth seen in most markets (from 10%-25%), this will be a relatively nominal reduction.

       

What can be done to spur growth to maintain your earnings?

TMI has already begun to look at optimal cost management for the group to maintain profitability and increase margins. We are looking at group synergies and cost savings projects through focused initiatives such as network and service platform optimisation across networks to reduce both capital expenditure and operating expenditure.

Further to this, we are heartened to see the Government announcing several measures for economic stabilisation which includes the RM7bil economic stimulus package to ease the financial burden for the tax payer. Any initiative which increases personal disposable income and aids consumption growth will have a positive impact on the telecommunications industry.

Are TMI’s expansion plans on track despite the slowdown and how much capital expenditure is needed next year?

We are generally on track. In terms of mergers and acquisitions (M&As), we are still cautiously open to strategic opportunities albeit on a much lower priority. However, we need to finalise our overall funding structure and strengthen our balance sheet first.

With regards to our network expansion plans, we are still very much on track. We are pursuing our long-term vision and goals and implementing our strategies as vigorously as before.

We are pressing ahead with identifying and implementing key processes from marketing and branding to network, customer service and procurement.

Nevertheless, the crisis has made us more cautious in terms of our spending. We have deferred some non-critical expenditure in some of our operating expenditure and capital expenditure initiatives in the second half of 2009, and we will conduct periodic checks to study the impact of the global crisis on our plans and financial performance.

Do you see TMI getting into more acquisitions, given the fact that the slowdown will present more buying opportunities than in a boom market?

The group has completed the first phase of building the regional footprint, which we have achieved successfully.

Now is a period of rationalisation to unlock value by nurturing and streamlining business. Whilst there has been a shift in emphasis in our strategy from M&As to organic growth, we are cautiously open, as mentioned earlier, to selected M&A growth opportunities.

Before embarking on any M&A, we do conduct an assessment of the risks and rewards, mindful of how it would impact our financial position.

In 2009 we may see interesting opportunities or the emergence of assets on the market, not normally available, being accelerated due to the crisis.

Furthermore, asset valuations will come down and there may be opportunities to buy at cheaper prices. Whilst we will certainly look at these assets, given the economic crisis, we will also increase our hurdle rates to factor in the increased risks.


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